Skip to main content

Trading using Trendlines

Trading Stocks using Trendlines

In Technical analysis identifying the trend is an important factor.The trend can be up, down or sideways. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.

Using trend lines as a tool to technically analyze the markets has been around for a long time and was originally also used by floor traders. A long line of past price ranges together gives you a pattern.There will be plenty of ups and downs along the line but you should still be able to discern a general direction up, down, or sideways.

How to draw a trend line.

The first consideration when looking at any market is the direction of the long term trend.Trendlines illustrate the direction of the market movement and provide a primary consideration in any analysis.
Uptrends consist of a series of successively higher highs and lows.
Drawing trendlines during an up trending market: The trendlines above have been drawn by connecting as many successive lows as possible (along the bottom of the price range). An up trending trendline represents major support for prices as long as it is not violated.


Downtrends consist of a series of successively lower highs and lows.
Drawing trendlines in a down trending market: Down trending trendlines are drawn by connecting as many successive highs as possible as shown above (along the top of the price range). A down trending trendline represents major resistance for prices as long as it is not violated.



Support and Resistance

An important concept in the use of trendlines as mentioned above is that of support and resistance.
A continued trend is based on underlying support for prices in the market, for whatever reason.

Similarly, there is resistance to higher prices built into the market.The trendline is one way to capture and illustrate these zones of support and resistance.

As long as the market stays within these zones of support and resistance, as shown by a trendline, the trend is sustained. Any penetration through a trendline warns of a possible change in trend. We may not know the reason behind such a change, but we do know that for some reason the support or resistance for a market is changing.

The general idea behind trading trendlines is to look for a break of the trend in the opposite direction

Conclusion

Trend lines can offer great insight, but if used improperly, they can also produce false signals. Other items - such as horizontal support and resistance levels or peak-and-trough analysis - should be employed to validate trend line breaks. While trend lines have become a very popular aspect of technical analysis, they are merely one tool for establishing, analyzing, and confirming a trend.

Trend lines should not be the final arbiter, but should serve merely as a warning that a change in trend may be imminent. By using trend line breaks for warnings, investors and traders can pay closer attention to other confirming signals for a potential change in trend.

Comments

Popular Posts

Your Bill Amounts Are Going To Increase From June 1, 2016

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Union Finance Minister, Arun Jaitley, in his budget announcements proposed to impose a cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The present rate of service tax will be hiked to 15 per cent from June 1, 2016, from 14.5 per cent. Take a look at what gets expensive:



Phone Bills: Your phone bills are going to go up. So, pay a good 15 per cent now on service tax on phone bills.

Restaurant Bills :If you are dining in a restaurant that already has service tax applicable, you are going to pay more on your eating out. Though 0.5 per cent on a single bill may not mean much, frequent diners may end-up paying a lot during the year.

Travelling: You will have to pay more for air travel, as there is a service tax on tour operators and travel agents.

Moneycontrol Terminal - Streaming Live Quotes

Moneycontrol has introduced a new feature Moneycontrol Terminal - an enhanced version of real time price updates. Though there were live quotes provided by the website previously, the present form  gives a better update of live quotes of indices and stocks.

This terminal provides live streaming quotes for both NSE and BSE free. It also provides quotes for most of the indices and also the constituents/stocks of the indices in BSE and NSE.  The terminal also provides live news and other market news, which might be useful for traders. The hardware recommended is minimum of 1 GB RAM.

It would be better if stock of any choice could be added ( market watch of a set of stocks ), which would be easier to track one's trading positions. Anyway, this is a better alternative for people who don't have access to any trading software, to view live action of the markets.




You could just try the same here at Moneycontrol Terminal


NSE Level 3 Data

Before we get into details of NSE Level 3 Data, it is important to first understand the basic operations of the stock market.  All publicly traded equities have a bid price and an ask price when they are bought and sold. The bid is the highest price a trader( or an investor) is willing to purchase a stock. The ask is the lowest price in which he is willing to sell a stock.


Depth of the Market(DOM):Looking at a Level 1, Level 2 or Level 3 quotes can give a trader, a basic idea of how a stock is performing at any given time.

Level 1 Market Data provides the basic market data which includes Bid price, Bid size, Ask price and Ask size.

Level 2 Market Data provides more information than Level I data. Mainly, it doesn't just show the highest bid and offer, but also shows bids and offers at other prices. Now level 2 provides market depth data upto 5 best bid and ask prices.

Level 3 Market Data provides market depth data upto 20 best bid and ask prices .  This primarily used by brokers and ma…